Negotiability
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ARTICLE 9 1. Secured Transactions in Personal Property a. Article 9 1. Original version of article 9 was drafted by Grant Gilmore and many called it a drafting masterpiece (well written, easy to follow) 2. Revised Art 9: try to answer some specific questions a. Official comments are a plus 1. Not mandatory authority for courts, but they are clearer than the actual statutes and courts are influenced heavily by the examples given by the drafters a. Pre code security devices 1. Transfers of tangible and intangible personal property where debtor retained use were fraudulent and avoidable a. Court in Benedict held that even if an arrangement like this was recorded, the parties wouldn’t know where to look for it, so void Benedict: Debtor in Bk would sell carpet to customers, and customers would agree to pay for carpet over time (this is an account receivable). The debtor needed cash, and sold the accounts receivable to assignee at a discount and assigned them, in exchange for cash. The debtor was allowed to use the proceeds of the accounts unless called upon to hand them over. b. Benedict has been expressly overturned because Article 9 now has a mechanism for recording security interests in personal property 2. Conditional sales contract: buyer takes possession of the property, seller retains title until paid off a. Conditional sales contracts are a security agreement AND chattel paper b. Seller retains title and can foreclose if you don’t pay c. This one of the only pre article 9 methods of securing a security interest that still exists b. Policy of Article 9 1. Avoid secret liens 2. Facilitate secured lending 3. Unify and make certain the law governing secured transactions in personal prop c. An unpaid seller of goods cannot seize the goods without a security interest in them 1. Foreclosure is generally allowed where the creditor has a security interest a. Rationale Secret lien/notice 2. Two Exceptions: a. insolvent buyers 2702 b. bad checks 2507, 11 3. Conditional sales contracts constitute a security agreement 2. Article 9 suggested approach a. Scope Is the transaction subject to Article 9? Rev. 1201(35), 9109, Rev. 1203 b. Classify the collateral 9102 (Art. 9 Definitions) 1. the classification tells us how to create and perfect security interest c. Has a security interest been created? 9203 1. Enforceable between debtor and secured party d. Is the security interest “purchase money” 9103 e. Has the security interest been perfected 9301 - 9316 1. When perfected, it is good against the world f. Does the security interest reach proceeds of the collateral 9315 g. Resolve priority disputes 9317 - 9339 h. How can the secured party foreclose 9601-9628 QUESTION 1: Is the transaction subject to Article 9? 1. 9109(a): this article applies to: a. Transaction that creates security interest in personal property or fixtures via contract to secure payment or performance of an obligation 1. Contractual transactions are consensual 2. The form of the transaction does not matter (regardless of what the parites call it) 3. Can be any kind of an obligation a. Most common: obligated to pay back a loan b. Agricultural lien 1. Big exception to the rule that Article 9 doesn’t cover statutory liens c. Sale of accounts, chattel paper, payment tangibles or promissory notes d. Consignment 1. Generally a. Assume you create an innovative product but you cant find a major chain store willing to buy the product outright. Instead you go to smaller retailer and get some shelf space. To the extent that the product is sold, the store will get 10%. If they are not sold in 30 days they take it back. 1. Consignor takes all the risk in terms of sale 2. Covered Consignment Transactions a. Transactions defined in 9-102(a)(20): consignor must file this is the UCC Definition of Consignment 1. Transaction, regardless of form, where a person delivers goods to a merchant for the purpose of sale, and: a. The merchant: 1. Deals in goods of that kind under a name other than the name of the person making delivery; 2. Is not an auctioneer; and 3. Is not generally known by its creditors to be substantially engaged in selling the goods of others; b. With respect to each delivery, the aggregate value of the goods is $ 1,000 or more at the time of delivery; c. The goods are not consumer goods immediately before delivery; and d. The transaction does not create a security interest that secures an obligation. b. Collateralized transactions disguised as consignments: consignor must file In re Fabers: Persian rugs allegedly sold on consignment, and the consignee was in bk. Proceeds of the sale of rugs were held in trust and could be commingled. Dealer held title (consignee). No advertising that its consignment, but instead the advertisement said that the rugs came from the consignor. Consignor also argues that the merchant was substantially engaged in selling goods on consignment. Question: is the consignor protected as a true consignment not subject to Article 9, or are the rugs available for payment to other creditors as an unperfected security interest. Holding: disguised secured transaction. Court finds that creditors were NOT generally known by creditors to be selling the goods of others, and the advertisement was not sufficient. 3. Consignments excluded from article 9 by 9-102(a)(20): “True Consignment” a. no filing needed, left to common law. Consignor will typically win. b. True Consignment Characteristics 1. Consignor retains title 2. Risk of loss on consignor 3. Consignor controls terms of sale 4. Consignee not obligated to purchase goods 1. If “consignee” is obligated to purchase goods with “consignor” having a right to take them back if “consignee” doesn’t pay, transaction may be a disguised secured transaction c. Seller is generally known by its creditors to be substantially engaged in selling the goods of others (doesn’t satisfy definition of consignment) 1. Hard to say substantially engaged in selling the goods of others when store sells their own goods too Ex. A is large antique store, known for letting antique dealers rent out space and exhibit their wares. Store took commission on sales, and returned unsold items to the dealer. A takes out loan from ONB, granting s.i. in all its inventory. No facts lead us to believe that the transactions are disguised loans or security interest. Additionally, facts indicate that creditors generally their business is being engaged in selling the goods of others (might need more facts about what the creditors know). No secret lien problem because it is understood that the goods in the store are owned by consignor. 4. Artists in California are protected by state law, and CA law trumps Article 9 even if they don’t file e. Security interest arising under 2401, 2505, 2711(3) or 2A5-8(5), pursuant to 9110 f. Security interest under 4210 or 5118 g. Security interests disguised as leases Rev. 1203 1. True lease Article 2A: no obligation to file, protected from lessees creditors a. true leases generally contain a reversionary interest for the lessor 2. Disguised Secured Transaction a. 1203(b) A transaction in the form of a lease creates a security interest if the consideration that the lessee is to pay the lessor for the right to possession and use of the goods is an obligation for the term of the lease and is not subject to termination by the lessee, and: 1. the original term of the lease is equal to or greater than the remaining economic life of the goods; 2. the lessee is bound to renew the lease for the remaining economic life of the goods or is bound to become the owner of the goods; 3. the lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement; or 4. the lessee has an option to become the owner of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement. a. defined in 1203(d), but more of a know-it-when-you- see-it test. 1. does the purchase price look like something the collateral would be worth at the end of the lease, or is it a lot less than that 2. the fact that the lease price is worth more than the value over the term doesn’t make it a sale Ex. B leased machine to C for 5 years, payments over the years equaled current price of the machine. At the end of the 5 years, C has option to purchase the machine outright for 5 dollars. No option to terminate, lease was for a term, and option to purchase for nominal consideration. B should have filed, ONB wins. Ex. B leased copier from C for 5 years. FMV of 300k, 10 year useful life. Over the 5 years, payments would total 330k. B has option to become owner at the end of the 5 year period by paying C 10k. Is the 10k nominal? Probably need an analysis for the value at the end of the term. Closer to the value is to the purchase price, more likely a lease. Farther away the value from the purchase price, more like a sale. What if useful life was 5 years: viewed as a sale bc no reversionary interest because the useful life is up Milwork: creditor wants debtor to assume or reject leases, but if they are disguised s.i., then not an issue. Forklift: disguised sale b/c debtor could purchase for a dollar at the end of the lease (pretty easy one). Truck: at end of lease term the truck was to be sold, and the debtor would earn the difference between the residual value of the truck and the sale price. If the truck was worth more, the debtor got the excess, but if worth less, the debtor took the hit. Question was whether only sensible option was for the lessee to exercise the option Will the lessee be compelled to purchase? This is judged at the time the lease was entered into, and whether lessee would be compelled depends on the predicted FMV of the car is at the time of the lease and what lessee thought it would be worth. Holding: 9,000 amount looks like a fair price for what the truck was going to be worth at the time and it was not nominal consideration and it looked like a true lease. Court also looks at other factors like insurance and fees, and says these are unique to lease transactions. 3. Article 9 does not apply to statutory liens a. Statutes that give rise to a lien Ex. State law gives mechanic doing repairs a possessory lien on property repaired. B takes car to M’s Garage for repair and cannot pay the bill. M’s lie on the car is not subject to Article 9. BUT, if prior to repair work, B signed a statement giving M’s Garage a right to repossess the car if the bill wasn’t paid, a agreement create security interest by consensual contract with personal property as collateral. This would be covered by Article 9. b. EXCEPTIONS: Article 9 does apply where 1. Priority disputes b/w statutory liens and security interest Ex. Dispute b/w shop w/ mechanics lien and bank w/ interest in the car 2. Agricultural liens a. Special interest liens created by the state legislature that protect certain suppliers of goods or services to agriculture industry Ex. Crop duster lien. State legislature grant a security interest on the proceeds of the crop to secure payment of the crop dusting 4. Article 9 does not apply to Sureties a. Equitable right, sureties do not have to file to protect their interest b. Art 9 doesn’t deal with this because its not two secured parties c. Left for courts to resolve 1. Methods employed by courts a. First in time, first in right: surety issued before loan was made b. Sureties win because they are favored d. Bottom line: between surety and perfected Art 9 secured party, surety will win 5. Exclusions for Art 9 Even if the transaction falls w/in Art 9, there are some exclusions a. Transaction can be excluded in whole or in part b. Statutory preemption 9109(c) 1. 9-109(c)(1): Article 9 does not apply to the extent that a United States statute, regulation or treaty preempts this article a. “To the extent”: if federal law allows for state law (Article 9) to play a role, then Article 9 can play a role b. Fed law only applies where it requires a secured party to file somewhere other than the sec. of state office 1. Most significant in the aircraft transactions (must file with FAA) and ship mortgage act
2. 9-201(b): state law preemption a. each state can enact a provision that all the consumer protection law in that state that trumps Article 9 c. Excluded by Article 9109(d) 1. Landlord’s lien 9109(d)(1): in some states, LL gets a lien on property of the tenant to secure payment of the rent a. A consensual security interest between a tenant and a LL has no reason to be excluded 1. LL lien is not talking about consensual liens, it is a lien arising under operation of law (statute or case law) in favor of landlords b. Code doesn’t define LL lien 9109, Comment 10 is helpful 1. Article 9 seeks to exclude real estate type transactions and statutory liens from its scope a. LL liens arise out of real property law (LL/tenant law) and they are either statutory or judicial. 2. Assignment of employee wages, salary or other compensation a. Federal and state law protects employees 1. Employee wages cannot be assigned/used as collateral 2. Rationale: employees not in as good of a position to protect themselves b. Important to understand that independent contractors are not similarly protected 1. When an independent contractor does work for someone this creates an account receivable a. Accounts receivable are freely alienable and Article 9 covers sale and collateral agreements of accounts receivable
3. Sale of an entire business, including accounts 4. Assignment of accounts for collection only 9109(d)(5)
2. The assignment of an account receivable can be hard to differentiate, but this exception is one where you know it when you see it 5. Assignment of a single account for full or partial satisfaction of pre-existing debt 9109(d)(7) 6. Assignment of a right to payment under a contract to an assignee that is also obligated to perform under the K (d)(6) Ex. B receives commission to paint a portrait of the mayor, but was too busy to perform. With the mayor’s permission, B transferred the job to a new artist. The new artist does not need to take Article 9 steps because B assigned her a right to payment under a contract that the new artist, as assignee, is obligated to perform under 7. Real property a. Except for fixtures, real estate security interests are not covered by Art 9 Ex. If you borrow money to buy a house and bank takes a trust deed b. BUT, the lender may take the note or deed and sell them to someone else or use them as collateral for a loan 1. This is a personal property transfer that would require filing/perfection 2. if a security interest is taken in the notes secured by real property, that grants a security interest in the underlying mortgages 9203(g) 3. if the security interest is perfected in the note which is a deed of trust, that also perfects the underlying mortgage 9308(e) Ex. ONB loans money to LLC, and takes as collateral their real property mortgages and accompanying promissory notes from borrowers. What must ONB do to protect its interest in the collateral? See above: s.i in notes= s.i. in the underlying interest, perfected s.i. in the notes = perfected s.i. in the underlying interest 8. Deposit accounts taken as original collateral in consumer transactions a. BUT if the consumer account was used as collateral for a business transaction it is included in article 9’s scope 1. Thus only CONSUMER transactions are excluded b. Consumer = “personal, family or household purposes” Question 2: If Article 9 Applies, Classify the Collateral 1. Important because Article 9 distinguishes perfection of collateral based on the type a. Goods can be classified in different ways depending on the use Ex. Mobile home. Consumer good if you live there. Equipment if trailers at a construction site. And inventory if you sell them as a dealer. Ex. Professional pianists piano: Not consumer goods b/c it’s not his personal piano that he plays at a home. Not being held for sale at a store, so not inventory. Equipment because he uses it in his performances as a professional piano player.
b. Can be sometimes arguable what the collateral is 1. In this case, treat the collateral in all the ways you can and perfect accordingly 2. When Classification Occurs a. Classification is made at the time the interest is created 1. If the goods subsequently change use, it doesn’t matter b. Secured party has the right to rely on debtor’s statements regarding their intended use of the property
3. Types of collateral 9102(a) Tangible Property a. Consumer 1. (23): goods that are used or bought for use primarily for personal, family, or household purposes. b. Equipment 1. (33): goods other than inventory, farm products or consumer goods a. Generally thought of as the durable assets of a business that they are not selling to people b. If something cannot fit into any other category, it is equipment Ex. Curtains lawyer uses in office is equipment. If he then takes them home they don’t subsequently become consumer goods because goods classified at the time the interest was made. c. Farm products 1. (34): goods, other than standing timber, with respect to which the debtor is engaged in a farming operation and which are: a. Crops grown, growing, or to be grown, including: 1. Crops produced on trees, vines, and bushes; and 2. Aquatic goods produced in aquacultural operations; b. Livestock, born or unborn, including aquatic goods produced in aquacultural operations c. Supplies used or produced in a farming operation; or d. Products of crops or livestock in their un-manufactured states. Ex. Not a tractor b/c this is equipment, but would include chicken (livestock) or manure from the dairy herd (product of livestock) d. Inventory 1. (48): goods, other than farm products, which are either: a. Are leased by a person as lessor b. Are held by a person for sale or lease or to be furnished under a K of service c. Are furnished by a person under a contract of service d. Consist of raw materials, work in process, or materials used or consumed in a business. 1. Materials used and consumed in a business applies to short term items that get used up in a short period of time in producing a product or providing a service (Ex. Pencils used in a business) a. Compare to Equipment: fixed assets, long period of use
a. Account first want to see if the intangible property can fit into definition of account 1. (2): A right to payment of a monetary obligation whether or not earned by a performance a. Most common is where there is money owed for goods being sold and for services rendered Ex. Newspaper carrier’s rights to payments for papers already delivered and the newspaper carrier’s right to payment for papers to be delivered in the future Ex. right to sue for breach of contract a. why: account is a right to payment of a monetary obligation, and a seller of goods has a right to payment. This is the same as saying a party has a right to sue for a breach of K. This makes it an account. (Hull says unclear, but this is his assessment) 2. Includes health care insurance receivables a. (46): an interest in or claim under a policy of insurance which is a right to payment of a monetary obligation for health-care goods or services provided. Ex. When hospital treats patients they sign paperwork authorizing the hospital to seek payment from their health insurance coverage provider. The hospital’s right to payment from the health care providers based on the patients’ treatment plans is an account receivable. b. 9-109(d)(8): Article 9 does not generally apply to the assignment of insurance policy rights 1. Health care insurance receivables are an exception b/c these are viewed as an increasingly valuable asset 3. Includes rights to payment arising out of the use of a credit or charge card or information contained on or for use with the card (a)(2)(vii) Ex. Credit card company’s right to receive payment from customers for their use of the credit cards issued to the customers by the company. b. General Intangibles next step if not an account. Considered a catchall. Some exclusions. 1. (42) Included: payment intangibles, software, any personal property including things in action a. Payment intangible: general intangible where the principle obligation is monetary 1. Classic example: A loaned nephew 5k with an oral agreement that he would repay the money the following year. She can assign the collateral b/c it’s a payment intangible. It’s not an account because its just borrowing money, and the only obligation is the payment of money. 2. Tort claims reduced to settlement a. Only obligation is on the part of the tortfeasor to pay money b. This is where the tort claim is settled, not reduced to judgment NOTE: if an account receivable was sued on, the assignment of that right is covered by article 9 b. General Intangible Examples 1. Liquor license, right to return a security deposit to a landlord b/c the LL has an obligation to pay the tenant money (remember: not a payment intangible b/c the LL’s principle obligation to the tenant isn’t the return of the deposit/payment) 2. (42) Excluded: accounts, chattel paper, commercial tort claims, deposit accounts documents, goods, instruments, investment property, letter-of-credit rights, letters of credit, money, and oil, gas, or other minerals before extraction. c. Commercial Tort Claims are Excluded from General Intangibles 1. Code has a historic dislike for tort claims and generally precludes assignment Ex. Personal injury right to sue someone for negligence arising out of a car accident 2. Exception: Commercial Tort Claims 1. a claim arising in tort with respect to which the claimant is an organization or individual and the claim arose during the profession and doesn’t include damages for personal injury Ex. Tortious interference w/ contract, Right to sue a corporation for wooing away a trusted employee 2. These claims can be assigned Question 3: Has a Security Interest Been Created?
1. Security Agreement a. Document creating a security interest between the parties to a transaction b. Debtor must have authenticated a security agreement describing the collateral unless collateral under possession or control of secured party. 9203 1. Important because this is the operative document that tells us what the collateral is, whereas the financing statement puts the creditors on notice 2. Debtor usually retains possession of the collateral, which means that a written security agreement describing the collateral and signed by the debtor is normally needed c. Collateral description 9108 1. Must reasonably identify what is described 9108(a) a. Ways to reasonably identify collateral 9108(b) 1. Specific listing 2. Category 1. Whether categorical descriptions of inventory or accounts receivable extends to after acquired inventory/accounts after is left to state law contract interpretation a. NOTE: parties can include after acquired clauses in security agreements 1. This deals with situations where after acquired has not been expressly secured b. If a security agreement does provide for after acquired property, a financing statement omitting the after acquired designation and stating only the category of property is sufficient for perfection 3. As a type of collateral defined in the UCC 4. Quantity 5. Computational or allocational formula or procedure 6. Any other objectively determinable method of identification b. 9108(c): Super-generic description of collateral is not sufficient 1. Examples: “all the debtor’s assets,” “all debtor’s personal property” c. The security agreement requires minimum precision of categories 1. Some specificity, but not a lot 2. Drafters concerned that security agreements would be so broad that they wouldn’t accurately reflect the agreement b/w the parties Ex. P owned store, gets loan from Bank, which takes security interest in “all inventory, accounts receivable, equipment, instruments, general intangibles, and personal property.” Bank files takes possession of the jewelry. Loans debtor jewelry for the night. Are they still secured? Description of personal property in the financing statement was not sufficient to perfect them for jewelry, but they took possession which meant financing statement wasn’t requirement. But once they let debtor take it overnight, they needed a filing since no longer in possession. Thus while taken out they are not perfected with regards to the jewelry. d. “Consumer goods” is not a sufficient description in a consumer transaction or consumer goods transaction. 9108(e)(2) 1. Cannot have after acquired property clause in consumer good transactions 9204(b) 2. EXCEPTION 9204(b)(1): consumer goods that are accessions that debtor acquires an interest in within ten days after the secured party gives value a. Accession: goods physically united with other goods where the identity of the original goods is not lost Ex. Secured party gave value around Aug 4, and the machine was bought Oct 11, this is outside the period for after acquired consumer goods d. Debtor must sign the security agreement 1. See definition of debtor below e. Security agreement must provide for a security interest. 9102(a)(73) 1. Courts say this requires “granting” language 2. Reserving title in goods effectively reserves a security interest in the goods Ex. Conditional sales contract (these are a security agreement and chattel paper). F bought a new computer on conditional sales K where he agreed title would remain w/ store until computer paid for in full. K described the computer. Even though the K didn’t mention a security interest explicitly, it was sufficient b/c conditional sales K. f. Only items described in the security agreement can be perfected by the financing statement 9203 g. Security agreements can be drafted to ensure that a particular piece of property is included in the security agreement 1. Ex. “All equipment including but not limited to abacus 12” a. Protects against another creditor claim that abacus 12 isn’t equipment h. Blank space in the security agreement 1. Definition of agreement 1201(b)(3): agreement as distinguished from contract means the bargain of the parties in fact, as found in their language or inferred from other circumstances, including course of performance, course of dealing, or usage of trade as provided in Section 1303 a. Security agreement is an agreement that provides for a security interest, and should we be able to look at everything to figure this out b. Ultimately all sorts of information should come in to prove this was a security agreement 2. Perfection of the Security Interest Financing statement UCC 1 a. Document most commonly used for perfection 1. note: no signature of debtor needed b. Designed to put the world on notice of an interest in a security agreement c. Financing statement issues 1. Who is the debtor? a. Definition 9102(a)(28) 1. Person with an interest in the collateral, other than a security interest or other lien (whether or not the obligor) a. Practically this means the person that owns the collateral Ex. R needs collateral for a loan, and asks brother D to use D’s boat as collateral. D owns the collateral so he is the debtor. D also needs to sign the security agreement and the financing statement must be filed in hi name. 2. Seller of accounts, chattel paper, payment intangibles or promissory notes 3. Consignee 4. Obligor is the person obligated to pay the debt, but this is not always the debtor, since being the debtor depends on having an interest in collateral. b. Financing statements indexed under the debtor’s name 9503 1. Individual debtor = individual name even if they do business under (d/b/a) under another name a. Doesn’t say what is meant by an “individual name” 2. Organization = name of debtor in public records where organized a. Usually more than one person, not a sole proprietor doing business not in partnership or corporate form 3. Partnership = name of partnership c. Filing statement ineffective if debtor’s name seriously misleading 9506(b) 1. Incorrect name under 9503 is NOT seriously misleading if someone searching under the correct name, using the standard search logic of the office, would find the financing statement filed 9506(c) 2. Examples of seriously misleading a. Bryan Hull filed as B. Money b. Michael A. Irwin filed as Mike Irwin 1. Precision of the name is left open under current law, and depends on the search logic of the office 3. Case law varies on what constitutes seriously misleading Pankratz: man’s name spelled Rodger, and the statement was filed as Roger. Holding: ineffective filing b/c the search logic in Kansas was so literal that the misfiled name wouldn’t come up under a search Host: the right name was K.W.M. but the statement was filed KWM w/o periods and it didn’t come up in the search. Held: seriously misleading. Erwin: correct name should not be interpreted so narrowly, it could mean something other than the birth certificate. If people know him as Mike Irwin you should search under this name (other courts haven’t been so generous) 4. Should search the debtor’s names in the record, see if they come up. If not, creditor should re-file. d. Name of the debtor, not the address, is what matters for identification of the debtor in the financing statement 1. Address is just to identify who the debtors are, and it doesn’t need to be accurate. 2. There can be an effective financing statement w/o the correct address
2. What happens when the debtor changes name, business structure? 9507 a. Name Change 1. If debtor changes name and it becomes seriously misleading, the secured party does not have to refile if they filed the security interest before the name change or within 4 months after the name change 9507(c). a. If no refilling, the financing statement only perfects collateral acquired by the debtor before or within 4 months after the name change. Comment 4 1. Rationale: can only have a security interest in things debtor has a right in Ex. If a security interest is in “inventory now existing and after acquired,” creditor will have to refile for inventory obtained by debtor after 4 months after the name change. b. Creditor has to refile to perfect a security interest in any collateral acquired after the 4 months. Comment 4. 1. Burden on creditor to file an amendment to financing statement if they are concerned about the collateral 2. Also puts burden on secured parties to ask about prior names before extending credit b. Business Structure Change 1. One business sells its assets to another a. Original, filed financing statement is effective with regards to collateral sold, exchanged, etc 9507(a) 1. No refilling with new name necessary b. Original financing statement does not reach collateral acquired by the purchasing company after purchase of the original company Ex. LNB financing statement for accounts of A. V buys A. LNB remains perfected with the original accounts, but V is a different entity and LNB does not obtain an interest in their accounts with a new security agreement and filing. Comment 3 9507(a) 2. Merger (changes the debtors business structure and a new entity emerges) a. Financing statement is effective with respect to collateral acquired before the merger and four months after b. Financing statement Yüklə 344,04 Kb. Dostları ilə paylaş:
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